Qualifying interest in possession trusts - IHT treatment

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Qualifying interest in possession trusts - IHT treatment
  • Death of the beneficiary with the qualifying interest in possession
  • Ending of an interest in possession during beneficiary’s lifetime
  • Calculation of inheritance tax on lifetime termination of QIIP

Trust property, which is the subject of a qualifying interest in possession (QIIP), may become chargeable to inheritance tax on the following occasions:

  • on the death of the beneficiary with the interest in possession
  • on the death of the beneficiary within seven years after a transfer or lifetime termination of his interest
  • on the transfer or conversion of the interest to a non-qualifying or discretionary interest

Property in which a QIIP subsists is not relevant property so it is not subject to principal and exit charges during the life of the trust. See the Definition of relevant property guidance note, and other notes in the 'relevant property' sub-topic for details of the relevant property tax regime.

Death of the beneficiary with the qualifying interest in possession

When the beneficiary with the QIIP dies, the trust property will be valued and counted as part of the deceased estate, and the inheritance tax estate charge will be levied on that property (in addition to any other property that is in his estate). In valuing the trust property the related property rules will apply.

IHTA 1984, s 5(1),(1A)

Once the inheritance tax estate charge has been calculated, the trustees of the interest in possession trust will be responsible for paying that part of the tax that relates to the settled property (with the personal representatives being primarily responsible for paying the balance).

By contrast, should you act for a remainderman of a qualifying interest in possession trust, his interest is, generally speaking, ignored for inheritance tax purposes and no part of the trust property is included in his estate when he dies.

IHTA 1984, s 48(1)
Calculation of inheritance tax

To calculate the inheritance tax

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